April 12, 2013 7:31 pm

AMR deal on the radar despite payoff ruling

The bankrupt parent of American Airlines on Friday insisted it planned to press ahead with its merger with US Airways and the proposed $19.9m severance payment to its chief executive, despite a judge’s refusal to approve the payment immediately.

AMR Corporation said it would present plans to make the payment to Tom Horton – half in cash and half in shares – as part of its reorganisation plan to be filed with the bankruptcy court next month. The proposed payment looks likely to be approved because creditors have raised no objection.

Mr Horton is due to step aside as AMR’s chief executive when the merger with US Airways is completed, probably later this year. He will then serve as non-executive chairman until the new, merged company’s first annual meeting. Tracy Hope David, the Department of Justice bankruptcy trustee for New York, Connecticut and Vermont, had lodged objections to a range of pay proposals under the merger agreement last month.

AMR has been under Chapter 11 bankruptcy protection since its expensive labour agreements and other high costs forced it into insolvency in November 2011.

It had asked the court to allow the proposed payments immediately as part of its approval of AMR’s planned merger, announced in February.

In a 20-page judgment, Sean Lane, the bankruptcy court judge who has overseen AMR’s bankruptcy, approved all other parts of the proposed merger except for the pay deal. He also rejected AMR’s argument that the payments were not a matter for the bankruptcy court because they would come from the new company.

However, the judge pointed out that, if the company modified its plans to include the payoff in its proposed, post-bankruptcy reorganisation, the new company’s board would have the right to decide to make the payments or not.

If that happened, he said, it was unclear whether there was any point in the court’s ruling on the severance package, since the new company’s board would have the option of vetoing it. “Under this proposed amendment, there is little reason for the court to be involved at all,” he wrote.

American Airlines confirmed the company now planned to suggest the pay arrangements as part of its reorganisation plan. “The court’s written approval of the merger agreement allows us to continue progressing with our planned merger with US Airways,” it said.

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